Japan faces fiscal strain as food tax cut plan raises bond market worries

Japan’s government, led by Prime Minister Sanae Takahashi, announced a temporary reduction of the food consumption tax from 8 % to 1 % starting in April, with cash subsidies intended to offset the remaining burden and bring the effective rate to zero. The measure is projected to cost about 5 trillion yen (≈ $307 billion) each year. Takahashi said the financing will avoid new deficit‑bond issuance, instead drawing on non‑tax revenue, special‑account balances and surplus funds, emphasizing that “we will start from zero and try to raise funds from all special accounts and funds.” Analysts note the funding source remains unclear, and markets reacted with higher Japanese‑government‑bond yields. In the same week, foreign investors sold a net 1.51 trillion yen of long‑term and 2.89 trillion yen of short‑term Japanese bonds—the largest weekly outflow in four months—spurred by rising oil prices and a sharp yen depreciation that could prompt the Bank of Japan to tighten policy.